Bill Gates-Led Fund Backs Lake’s Technology Partner Lilac

Lake Resources (ASX:LKE) is pleased to announce that Lilac Solutions has raised US$20 million in Series A funding.

  • Lake Resources planned sustainable lithium production using direct extraction technology provider – Lilac Solutions – has gained the investment support of the Bill Gates -led fund, Breakthrough Energy, leading an investment round of US$20 million.
  • Breakthrough Energy Ventures looks to invest in startups that are capable of cutting emissions. The fund’s investors include Jeff Bezos, founder of Amazon.com Inc., and Jack Ma, co-founder of Alibaba Group Holding Ltd and Michael Bloomberg, the founder of Bloomberg LP. MIT’s The Engine fund is another key investor in Lilac.
  • Lilac Solutions has partnered with Lake Resources and the first pilot plant using Lilac’s technology will start in Argentina later this year.

Lithium explorer and developer Lake Resources NL (ASX:LKE) is pleased to announce that Lake’s technology provider of a direct extraction ion exchange process, Lilac Solutions, has raised US$20 million in Series A funding. Led by Breakthrough Energy Ventures, a $1 billion fund established by many of the world’s top business leaders to support companies with the potential to significantly reduce greenhouse gas emissions, the round includes participation from MIT’s The Engine fund, Lowercarbon Capital, and The Grantham Foundation.

Lilac is commercialising a new ion exchange technology for lithium extraction from brine resources that is significantly faster, cheaper, and more scalable than existing technology. The process does away with the need for large evaporation ponds and is able to return the lithium-depleted brine back underground. Lilac’s funding will enable the expansion of its engineering team, scale up production of its unique ion exchange beads, the core of the company’s lithium extraction system, and deploy the Lilac technology.

“This is a great vote of confidence in Lake’s strategy from known successful investors to use direct extraction methods to produce high purity lithium. This is quality, third party validation in Lake selecting Lilac as our technology provider providing increased efficiency in recoveries and a shorter time to market with sustainable lithium products and a smaller environmental footprint without expansive evaporation ponds”, said Lake’s Managing Director Steve Promnitz. “These investors made money by investing in disruptive technologies, seeing opportunities and promoting higher efficiencies with greater environmental outcomes.”

Carmichael Roberts of Breakthrough Energy Ventures stated that “While the electrification of vehicles is one of the most promising opportunities to reduce global emissions, today’s limited supplies of battery raw materials like lithium and cobalt challenge this transition. Lilac Solutions’ novel technology can change the supply and demand equation by helping lithium producers extract much larger quantities at a significantly lower cost, and from new sources. This is the type of industrial innovation required to support a transition to EVs at scale.”

David Snydacker, Chief Executive Officer of Lilac Solutions, stated that “Other companies have tried to build these ion-exchange beads in the past, but they were either not selective enough at picking lithium out of the mixture of minerals or fell apart after just a few cycles.”

Lake aims for sustainable lithium production at its Kachi Lithium Brine Project producing a high quality, low impurity product capable of attracting premium pricing. The PFS which is almost completed is anticipated to show production costs in the lower part of the global cost curve.

The direct extraction process, together with the Kachi project, offers a sustainable solution for the downstream battery makers by extracting lithium from brines using ion exchange without traditional evaporation ponds. Brine is returned to the aquifer once the lithium has been extracted without changing the brine chemistry. This addresses increasing interest from electric vehicle makers (OEM’s) and battery makers to demonstrate they have access to a sustainable scalable supply chain for raw materials.

Brine samples are being transported from Kachi and expected to arrive late next week to the docks in Oakland, California. These brine samples will be initially used to complete the commissioning of a Lilac Solutions pilotscale ion exchange module. High-purity lithium chloride will be produced for conversion to battery-grade lithium carbonate. Deliveries of lithium carbonate samples to downstream groups are being planned to start the qualification process with off takers.

Lake looks forward to reporting on progress through to first large samples being produced late next month.

For further information please contact:

Steve Promnitz, Managing Director

Follow Lake on Twitter: https://twitter.com/Lake_Resources

+61 2 9188 7864

Follow on LinkedIn: https://www.linkedin.com/company/lake-resources/

steve@lakeresources.com.au

Website: http://www.lakeresources.com.au

About Lilac Solutions

Lilac Solutions is a mining technology company based in Oakland, California. Lilac has developed a patented ion exchange technology that facilitates production of lithium from abundant brine resources with minimal cost and ultra-low environmental footprint. Lilac’s mission is to increase lithium supplies needed for electric vehicles and renewable energy storage.

http://www.lilacsolutions.com/news/lilac-solutions-raises-series-a

About Lake Resources NL (ASX:LKE)

Lake Resources NL (ASX:LKE, Lake) is a lithium exploration and development company focused on developing its three lithium brine projects and a hard rock project in Argentina, all owned 100%. The leases are in a prime location among the lithium sector’s largest players within the Lithium Triangle, where 40% of the world’s lithium is produced at the lowest cost. Lake holds one of the largest lithium tenement packages in Argentina (~200,000Ha) which provides the potential for consistent security of supply, scalable as required.

Lake considers it is in a strong position to benefit from the market opportunity in electric vehicles and the batteries that power the energy revolution due to:

  1. High Purity Lithium Carbonate samples (99.9%) with very low impurities, recently produced from the pilot plant using a direct extraction process (ion exchange);
  2. Increased Engagement with Off-takers as larger samples are produced, anticipated from late March 2020 onwards, for off-takers to commence qualification testing to then engage to assist in financing;
  3. Kachi Project PFS, in the final stages of completion which is anticipated to show projected production costs at the lower end of the cost curve similar to current lithium brine producers. The Kachi project has a resource (announced Nov 2018) considered large enough for long term production and could be potentially scaled to a much larger project is required as leases cover an area 10 times Manhattan.
  4. Sustainable and Scalable Future Lithium Production, demanded by the larger Electric Vehicle makers and an increasing number of battery/cathode makers, who need to show both the quality and provenance of battery materials for ESG/sustainability and carbon footprint reporting. The direct extraction process reinjects brine once the lithium has been removed using ion exchange beads without affecting the chemistry. This means a much smaller footprint and less water usage because evaporation ponds are not used.

The Kachi project covers 70,000 ha over a salt lake south of FMC/Livent’s lithium operation in Catamarca Province. Drilling confirmed a large lithium brine bearing basin over 20km long, 15km wide and 400m to 800m deep. Drilling over Kachi produced a maiden indicated and inferred resource of 4.4 Mt LCE (Indicated 1.0Mt, Inferred 3.4Mt) (refer ASX announcement 27 November 2018).

A direct extraction technique has been tested in partnership with Lilac Solutions, with a pilot plant being commissioned, which has shown 80-90% recoveries and lithium brine concentrations over 60,000 mg/L lithium. Battery grade lithium carbonate (99.9% purity) has been produced from Kachi brine samples with very low impurities (Fe, B, with <0.001 wt%). Phase 1 Engineering Study results have shown operating costs forecast in the lowest cost quartile (refer ASX announcement 10 December 2018). Test results have been incorporated into a Pre-Feasibility Study (PFS) in the final stages of completion. The Lilac pilot plant in California will produce samples for downstream participants prior to being transported to site to produce larger battery grade lithium samples. Discussions are advanced with downstream entities, mainly battery/cathode makers, as well as financiers, to jointly develop the project.

The Olaroz-Cauchari and Paso brine projects are located adjacent to major world class brine projects either in production or being developed in the highly prospective Jujuy Province. The Olaroz-Cauchari project is located in the same basin as Orocobre’s Olaroz lithium production and adjoins the Ganfeng Lithium/Lithium Americas Cauchari project, with high grade lithium (600 mg/L) with high flow rates drilled immediately across the lease boundary.

The Cauchari project has shown lithium brines over 506m interval with high grades averaging 493 mg/L lithium (117-460m) with up to 540 mg/L lithium. These results are similar to lithium brines in adjoining leases scheduled for production in late 2020 and infer an extension and continuity of these brines into Lake’s leases (refer ASX announcements 28 May, 12 June 2019).

Significant corporate transactions have occurred in adjacent leases with development of Ganfeng Lithium/Lithium Americas Cauchari project as Ganfeng announced a US$397 million investment for 50% of the Cauchari project, together with a resource that had doubled to be the largest on the planet. Ganfeng then announced a 10 year lithium supply agreement with Volkswagen on 5 April 2019. Nearby projects of Lithium X were acquired via a takeover offer of C$265 million completed March 2018. The northern half of Galaxy’s Sal de Vida resource was purchased for US$280 million by POSCO in June-Dec 2018. LSC Lithium was acquired in Jan-Mar 2019 for C$111 million by a mid-tier oil & gas company with a resource size half of Kachi. Orocobre has announced on 19 Feb 2020 the acquisition of all shares in Advantage Lithium, valued at around C$63 million, which holds leases next to Lake at Cauchari. These transactions imply an acquisition cost of US$55-110 million per 1 million tonnes of lithium carbonate equivalent (LCE) in resources.

For more information on Lake, please visit http://www.lakeresources.com.au/home/

Click here to connect with Lake Resources NL (ASX:LKE) for an Investor Presentation

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Although the lithium market can be tricky to understand, the payoff can be substantial, said John Kaiser of Kaiser Research.

John Kaiser: No Upside in Tesla, Lithium Juniors are the Future of the EV Story youtu.be

Tesla (NASDAQ:TSLA) may be at the center of the electric vehicle (EV) revolution, but the Elon Musk-led company has no upside left. That means investors need to look elsewhere for opportunity.

That's according to John Kaiser of Kaiser Research. Speaking at the Prospectors & Developers Association of Canada (PDAC) convention, he said that lithium juniors have become the place to be.

Referencing a report from Rio Tinto (ASX:RIO,LSE:RIO,NYSE:RIO), Kaiser said that by 2035, roughy 1 million tonnes of lithium metal equivalent will be needed to support EV demand.

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lithium brine

Housing the world's largest deposits of lithium, Chile's unique geological landscape and climate make it ideal for lithium brine extraction

As the world continues on the path towards a future dominated by clean energy, lithium's importance only continues to grow. Demand for the battery metal has already reached an all-time high, increasing by 400 percent in 2021. What's more, there is every indication that this growth will continue in 2022, with prices increasing by 126 percent in just the first quarter.

Currently, Australia and Chile are the two leading producers of lithium, respectively accounting for 46.3 percent and 23.9 percent of worldwide production. Both countries are jurisdictionally inclined to support the mining sector. However, Chile's potential could one day see it outstrip even Australia where investment is concerned.

Housing the world's largest deposits of lithium, Chile's unique geological landscape and climate makes it ideal for lithium brine extraction. The country thus has a pivotal role to play in meeting demand and establishing a stable global supply chain.



A critical component of sustainability

Climate change is an undeniable problem, one which requires a collaborative effort to address. It is for this reason that governments around the world have all agreed to pursue full climate neutrality by 2050. Because combustion engines represent an inordinate percentage of greenhouse gas emissions, replacing them with electric vehicles (EV) is essential if any nation is to achieve their sustainability goals.

Lithium is used extensively in both consumer and professional electronics. It is also a staple metal in multiple other sectors, including mining, manufacturing and energy storage.

Given its cross-sector industrial importance, the battery metal was already in high demand.

The large-scale manufacturing of electric vehicles has caused this demand to increase exponentially. As multiple automotive manufacturers construct gigafactories to ramp up EV distribution, the need for lithium is growing well beyond our current production capacity.

Investors and mining companies can benefit by turning to jurisdictions like Chile to ramp up supply. The world's migration towards a sustainable future simply cannot occur without lithium.

Lithium: Australia versus Chile

Although Australia houses impressive lithium reserves, the majority of the country's stores occur in hard rock deposits. Mining these deposits is relatively inexpensive, but hard rock lithium operations also tend to have narrow margins compared to other methods. In particular, lithium brine extraction offers higher yields, greater efficiency and a lower overall environmental impact.

Currently, the largest lithium producer in Australia is Pilbara Minerals (ASX:PLS,OTC Pink:PILBF). Its flagship project, the Pilgangoora operation, is situated atop one of the world's largest hard rock lithium deposits. It also jointly owns a pegmatite lithium project with Atlas Iron (ASX:AGO), the Mt Francisco project.

Geography represents Chile's first major advantage over other jurisdictions. Alongside Bolivia and Argentina, Chile lays claim to a geographic region known as the Lithium Triangle. Located in the Andes in South America, it contains an estimated 68 percent of the world's identified lithium resources.

The Lithium Triangle is home to a series of vast salt flats, beneath which sit incredibly lithium-rich brine pools. More promising still is the climate of the region, which is known for being incredibly hot and dry. This represents a considerable boon for extraction operations, which typically rely on evaporative processes.

A powerful investment opportunity

Chile's mining sector has leveraged its arid geography to great effect. The country's Salar de Atacama salt flat is the largest-producing brine deposit in the world. It is also home to several major lithium brine operations.

One of these is owned and operated by Albemarle (NYSE:ALB). Currently the largest business provider of lithium for electric vehicle batteries, Albemarle also operates a lithium carbonate plant at La Negra. According to an Albemarle spokesperson, the company has a long history in Chile backed by a unique contract.

SQM (NYSE:SQM) operates another major lithium brine operation in the salt flat. As the world's largest lithium producer overall, the company recently announced plans to reduce brine extraction in the region by 50 percent by 2030. This announcement came in tandem with a commitment to reduce water usage across all its operations by 40 percent.

Finally, just south of Salar de Atacama is situated the highest-quality lithium pre-production project in Chile. Maricunga is jointly owned by Lithium Power International (ASX:LPI), Minera Salar Blanco and Li3 Energy. Situated just 250 kilometers from Chile's coast, and 170 kilometers from the mining town of Copiapo, it's said to possess characteristics directly comparable to Atacama. Maricunga is also adjacent to Highway 31, which connects Northern Chile to Argentina.

The most significant challenge to Chile's growth, from an investment perspective, is sociopolitical. Although the country has a history of being relatively friendly towards the mining sector, its current government is exploring new legislation that could nationalize both copper and lithium. A new mining royalty bill is also in the works, which could increase tax rates by up to 80 percent.

It's worth noting that not every investor considers the current political climate to be a risk. South32 (ASX:S32), a spinoff of BHP (ASX:BHP), recently invested US$1.55 billion to purchase a 45 percent stake in the Sierra Gorda copper mine, and a lithium auction held by Chile earlier this year saw Chinese manufacturing company BYD acquire extraction rights for 80,000 metric tons of lithium.

Takeaway

Chile is home to the largest, richest and most valuable lithium deposits in the world. For many investors, the high margins and low cost of lithium extraction in Chile more than make up for the potential of a few political speed bumps.

This INNSpired article is sponsored by Lithium Power International (ASX:LPI). This INNSpired article provides information that was sourced by the Investing News Network (INN) and approved by Lithium Power International in order to help investors learn more about the company. Lithium Power International is a client of INN. The company’s campaign fees pay for INN to create and update this INNSpired article.

This INNSpired article was written according to INN editorial standards to educate investors.

INN does not provide investment advice and the information on this profile should not be considered a recommendation to buy or sell any security. INN does not endorse or recommend the business, products, services or securities of any company profiled.

The information contained here is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Readers should conduct their own research for all information publicly available concerning the company. Prior to making any investment decision, it is recommended that readers consult directly with Lithium Power International and seek advice from a qualified investment advisor.

LPI:AU
sign post with arrows pointing to "right," "wrong" and "it depends"

Experts in the field weigh in on Goldman Sachs' lithium oversupply call and whether they think it accurately depicts what's happening in the market.

Last week, the lithium market was shaken by a report from investment bank Goldman Sachs (NYSE:GS) saying that the bull market for battery metals was over for now.

Prices for lithium, which increased more than 400 percent in the past year, are expected to drop in the next two years, with a “sharp correction” happening by 2023, according to Goldman Sachs analysts.

They project that lithium prices will fall from current levels to an average of just under U$54,000 this year, from an average of above U$60,000. By 2023, the bank forecast is for an average price of just over US$16,000.

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Lithium demand has surged over the last couple of years, attracting investor attention. Before jumping in, learn about the top Australian lithium stocks by market cap.

The rise of the worldwide electric vehicle revolution has brought ever-increasing interest in lithium, which is used in the lithium-ion batteries that power these machines.

Many market experts anticipate that lithium demand will increase in coming years, which is why it’s good for investors to have an idea of the biggest ASX-listed companies that are focused on the battery metal.

Here the Investing News Network lists the top five ASX lithium stocks by market cap. The following information was generated using TradingView’s stock screener and was correct as of May 17, 2022.


1. Mineral Resources

Market cap: AU$10.38 billion; current share price: AU$60.08

Mineral Resources (ASX:MIN) is a Perth-based mining services company with a particular focus on the iron ore and hard-rock lithium sectors in Western Australia. The company's current lithium projects include Mount Marion and Wodgina. The Mount Marion lithium project — located in Kalgoorlie, Western Australia — was upgraded in April 2022 to a production rate of 600,000 tonnes per year of mixed-grade product.

Mineral Resources and its joint venture partner Albemarle (NYSE:ALB) are currently working to recommence operations at the Wodgina project in response to surging lithium demand

2. Pilbara Minerals

Market cap: AU$7.74 billion; current share price: AU$2.82

Western Australia-based Pilbara Minerals' (ASX:PLS) main Pilgangoora operation produces spodumene and tantalite concentrate. Pilbara also has the Mount Francisco joint venture with Atlas Iron; there is still significant drilling to be done at the project as many targets are untested.

Pilbara has garnered the attention of many global partners, and together these partners hope to support production and a Stage 2 expansion at the company’s Pilgan plant. Following the successful completion of Stage 1, Pilbara is expecting to increase its production by 10 to 15 percent.

3. Allkem

Market cap: AU$7.29 billion; current share price: AU$12.24

Allkem (ASX:AKE) is a specialty lithium chemicals company based out of Brisbane. Orocobre merged with Galaxy Lithium and underwent a formal name change in November 2021 to create the entity. Allkem currently owns and runs operations for seven different projects worldwide in Argentina, Japan, Australia and Canada.

Allkem presented its growth strategy in April 2022. Under this plan, it plans to triple its production by 2026, while maintaining a position of 10 percent of the world’s lithium production for the next 10 years.

4. AVZ Minerals

Market cap: AU$2.75 billion; current share price: AU$0.78

AVZ Minerals (ASX:AVZ) is an explorer whose main focus is the development of its Manono lithium-tin project in the Democratic Republic of Congo. Manono is located at one of the world’s largest lithium, cesium and tantalum pegmatite deposits. Manono is also a historical site that was mined for its tin content for over 60 years.

A definitive feasibility study published in 2020 shows a 20 year mine life with an output rate of 700,000 tonnes per year of high-grade spodumene concentrate, and 45,375 tonnes per annum of primary lithium sulphate.

5. Liontown Resources

Market cap: AU$2.73 billion; current share price: AU$1.28

Liontown Resources (ASX:LTR) has two projects located in Western Australia, a resource-rich area of Australia. The Kathleen Valley project is expected to become a top battery metals provider, and is projected to begin development in Q2 2024. Meanwhile, the company's Buldania project is an emerging second project with an initial mineral resource of 15 million tonnes at 1 percent lithium oxide.

In February 2022, Liontown and US carmaker Tesla (NASDAQ:TSLA) entered a five year agreement for the supply of lithium from the Kathleen Valley project. Commercial production is planned for 2025, at which time the asset will begin the sale of over 100,000 tonnes each year.

Don’t forget to follow us @INN_Australia for real-time updates!

Securities Disclosure: I, Marlee John, hold no direct investment interest in any company mentioned in this article.

stones balancing with three smaller ones on one side and one larger one on the other

Experts believe the positive long-term outlook for electric vehicles means lithium demand’s breather could just be temporary.

Lithium prices climbed over 400 percent last year, with other key battery raw materials such as cobalt and nickel also seeing prices rally as demand from the electric vehicle (EV) industry picked up pace.

But by the end of the first quarter, prices started to stabilize as demand took a breather, particularly in China, where the government has imposed lockdown measures to contain a new wave of COVID-19.

“We expect lithium and cobalt prices to peak this year, from dented but still strong demand and supply chain challenges,” Alice Yu of S&P Global Market Intelligence said at a recent webinar.

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Critical Resources

Critical Resources has launched its campaign on the Investing News Network



Critical Resources (ASX:CRR) is an Australia-based critical mineral exploration and development mining company focused on assets to supply the clean energy revolution. The company's assets target essential minerals to transition to clean energy, including lithium, copper and zinc. Its flagship projects include a lithium portfolio of claims in Ontario, Canada, with its flagship project being Mavis Lake. Additional projects include its potential large scale zinc, lead, silver and copper project, Halls Peak in Australia and its Block 4 and 5 copper assets in Oman. A strong management team is leading the company to develop clear value propositions across all its projects with two active drill programs at both Mavis Lake and Halls Peak in 2022.

The company’s Canadian lithium portfolio embodies a province-scale strategy in Ontario focusing on hard rock lithium projects. The three chosen assets have previous exploration results indicating the potential for high-grade lithium mineralisation, particularly at the Mavis Lake project. Additionally, the mining-friendly province gives the company access to a robust infrastructure and access to an experienced workforce. Global electronics manufacturer LG is planning to build a US$2 billion battery-manufacturing facility in the region, demonstrating the presence of potential strategic partners in the region.

Mais lake

Company Highlights

  • Critical Resources is an exploration and development mining company with assets in Canada, Australia and Oman, targeting minerals critical to the global transition to clean energy.
  • The company has a province-scale lithium portfolio in Ontario, Canada, with access to an experienced local workforce and supportive infrastructure.
  • Critical Resources' additional assets target zinc, lead, silver and copper, allowing the company to provide shareholders with multiple opportunities to capitalise on in-demand natural resources.
  • A strong management team with diverse experience in natural resources, technical, commercial and corporate finance leads the company towards achieving its development goals.

This Critical Resources profile is part of a paid investor education campaign.*

CRR:AU

What is decentralised finance and what should investors know about this space in Australia? Find out here.

DeFi, short for “decentralised finance,” is a promising component of our brave new crypto world. The DeFi sector in Australia is here to stay, but what should investors know about this space?

DeFi offers an alternative to traditional financial services and institutions by bypassing banks, brokers, exchanges, and other “middlemen” which serve as financial intermediaries that regulate the markets. In effect, DeFi is evolving into a parallel financial framework that facilitates and records transactions involving financial instruments and payment mechanisms chiefly related to trading and lending operations.


The DeFi market is currently expanding at an explosive rate. According to figures released by DeFi Llama, cryptocurrency investors have put up $250 billion worth of assets as collateral in various DeFi projects, funds which are then lent out in the form of cryptocurrency loans. As more and more institutional investors enter the DeFi sector, the market is expected to expand to $800 billion by the end of 2022.

Bitcoin and Ethereum, the world’s two leading cryptocurrencies with market caps of $882 and $421 billion, respectively (as of the beginning of April), are digital assets whose ownership is documented in a public transaction ledger known as the blockchain. A traditional financial institution such as a bank, credit card provider or payment facilitator like PayPal, maintains its own private records and uses its own servers to process transactions. Cryptocurrency transactions, by contrast, are processed on the computers of a global network of users and recorded publicly (though pseudonymously) for the entire network to see.

As currently constituted, the emerging DeFi sector provides holders of cryptocurrency the ability to bypass the world’s traditional network of bank and other financial gatekeepers by means of independent, self-regulating computer programmes that rely on blockchain technology.

These decentralised applications (DApps) of blockchain technology offer a more efficient and streamlined mechanism to access financial services by creating an alternative ledger system known as “distributed ledger technology” (DLT) as opposed to VISA, PayPal, or other legacy digital payment services. By harnessing the power of blockchain, a new global ledger system has taken shape that relies on a global web of interconnected computers to record and track all transactions. Not only does DLT store such transaction data but it also identifed the parties involved in any transaction.

This allows anyone with a crypto wallet and an internet connection unlimited access to DeFi services. Users can trade currencies and move assets whenever and wherever they want and avoid antiquated and cumbersome bank transfer protocols and related fees. DeFi users are however required to pay “gas fee” charges for crypto transactions in many cases.

DeFi is thereby expanding the fundamental premise of digital money – Bitcoin and other cryptocurrencies – by allowing individuals and companies alike to execute financial transactions by means of a new and fully transparent system.

DeFi Applications

Lending platforms

The DeFi market is currently expanding at an explosive rate. According to figures released by DeFi Llama, cryptocurrency investors have put up $250 billion worth of assets as collateral in various DeFi projects, funds which are then lent out in the form of cryptocurrency loans.

Parallel to the expansion of the cryptocurrency market, DeFi will become increasingly able to provide loans via the various lending platforms that are popping up around the world. In effect, DeFi lending platforms are digital banks, taking money from cryptocurrency depositors and lending it out to borrowers.

Instead of traditional bank loans, the DeFi platforms rely on “smart contracts” – primarily the Ethereum blockchain – which uses computer code to authorize, execute and verify transactions.

Lending markets serve as one of the most intriguing and promising applications of DeFi by connecting borrowers to lenders of cryptocurrencies by means of platforms that enable individuals or companies to either borrow cryptocurrencies or provide crypto loans.

In order to obtain a loan, borrowers must put up collateral – usually ether, the crypto currency issued by Ethereum, the principal system on which all cryptocurrency applications are based. Borrowers tend to receive loans in the form of stablecoins pegged to traditional currencies like the dollar.

Alternatively, borrowers can post collateral in the form of Bitcoin, which then gets depositied in a crypto pool that is overseen by a smart contract. Should the price of Bitcoin take a precipitous fall, the smart contract automatically liquidates the collateral to protect depositors who have provided the loan funds in the form of stablecoins. Meanwhile, lenders earn money from the interest rate the platforms charge for lending out their funds.

Decentralised exchanges

Decentralised exchanges use smart contracts to enable traders to execute orders without an intermediary. Users trade directly from their wallets by exchanging one currency for another, e.g. Bitcoin for US dollars, euros for Ether, by means of the smart contracts behind the trading platform. Traders are solely responsible for managing and securing their funds and risk losing their holdings if they lose their private keys or send funds to the wrong addresses. The advantage of bypassing financial intermediaries and preserving anonymity is offset to a degree by the lack of security a bank or a centralized exchange provides.

Stablecoins

A stablecoin is a cryptocurrency pegged to the value of a non-crypto asset (i.e. the US dollar) that offers price stability which in turn provides greater security for DeFi collateralized lending. Tether is one of the leading stablecoins.

Australia: Making a splash in DeFi

Australia currently ranks 12th out of 154 countries according to the Global DeFi Adoption Index published by Chainanalysis. This index uses three metrics in its assessment of DeFi adoption: On-chain cryptocurrency value received by DeFi platforms weighted by PPP per capital; total retail value received by DeFi platforms; and individual deposits to DeFi platforms.

Australia’s DeFi sector is currently experiencing a boom led by various companies such as Synthetix (SNX), which hopes to become a decentralised version of derivatives exchange BitMEX, Maple Finance (MPL), which offers loans for crypto institutions, and newly launched Tiiik, which offers a digital wallet that allows investors to earn interest on DeFi products. Other new Australian DeFi players include Thorchain, Ren and mSTABLE.

While the DeFi sector is currently in its first develomental phase much like Bitcoin in its early days, individual investors have three main ways of investing in this evolving industry. First, one can obtain cryptocurrency-based loans; second, one can earn interest (by lending (staking) their crypto holds, looking to invest in DeFi coins. (Block Earner, for example, is an Australain fintech outfit that provides a DeFi online savings platform which pays 7 percent interest on deposits.) Third, investors can simply invest in DeFi coins in the same way that one can purchase cryptocurrencies.

Evolving market

Investors willing to take a plunge in DeFi should be aware that the underlying volatility of the cryptocurrency markets can rattle the DeFi sector in the event of sharp declines in Bitcoin, Ethereum and other cryptos. There is also the added spectre of rug pulls, a relatively rare but catastrophic form of fraud.

Rug pulls see unscrupulous DeFi developers create a new token, pair it to a leading cryptocurrency such as tether, set up a liquidity pool, and then use secret back doors encoded into the coin’s smart contract to mint millions of new coins before liquidation. This was the case in 2020 when SushiSwap developer Chef Nomi cashed in his SUSHI tokens after raising over a billion dollars in collateral finance which caused the price of SUSHI to crash to near zero.

Don’t forget to follow us @INN_Australia for real-time updates!

Securities Disclosure: I, Harold Von Kursk, hold no direct investment interest in any company mentioned in this article.

Interested in the relationship between the gold price and the ASX? Here’s how the two interact and how you can benefit from it.

As the gold space becomes more prominent in Australia, it can be beneficial for investors to understand the unique relationship between the gold price and the ASX.

The two sources of trade are able to push and pull one another, although in general the price of gold tends to indirectly follow the movements of the ASX.

Read on for a breakdown of gold’s history in Australia and what’s currently affecting the price of gold. We’ll also explain the relationship between gold and the ASX, and how you can benefit from it as an investor.


Gold price and the ASX: The history of gold in Australia

Gold’s significance in Australia began in 1832 with James McBrien, who found traces of the yellow metal near Bathurst, New South Wales. However, for the most part, early discoveries of gold were kept under wraps, because authority figures were concerned that convicts, soldiers and public servants would abandon their work and other responsibilities to search for the metal.

That changed in 1851 when Edward Hargraves and his colleagues found gold, again near Bathurst. This time, the discovery was made public, and within a month, close to a thousand men were searching for the metal in an area called Ophir, named after the biblical story about King Solomon’s gold city.

There were more gold discoveries in the state of Victoria in 1854 following the rush in Bathurst. Tens of thousands of immigrants from around the globe headed to the Australian colony in search of the yellow metal, with Ballarat and Bendigo in Victoria becoming major gold sites.

Between 1848 and 1858, Australia’s population tripled to more than 1 million people. Gold fever then hit Coolgardie and Kalgoorlie in Western Australia in the early 1890s, when key discoveries were made in those areas.

During this time, exciting gold finds were spurring the development of inland towns, communications, transport and foreign trade. In fact, since Australia’s first recorded gold discovery, the metal has changed where and how people live within the country. Many towns were developed using wealth generated from mining gold, and Australia is also home to ghost towns that were deserted when the gold sources that kept them afloat ran out.

Even though the precious metal has made large contributions to Australia’s development, its importance declined during most of the 20th century as other metals became more prevalent and economically significant. Gold later underwent a resurgence in the 1980s and 1990s, when the use of new technology allowed lower-grade ores to be processed economically.

Today, Australia is stepping back into the spotlight as one of the most prolific gold-mining regions in the world. In terms of gold prices throughout the years, the metal has experienced a mostly upward trajectory in Australian dollars.

Gold price and the ASX: What’s moving the gold price

At the start of 2022, the gold spot price was around AU$2,500 per ounce, which is much higher than it was almost 20 years ago. In the year 2000, gold hit AU$481.68, a high at the time, and 10 years later it was still climbing, breaching the AU$1,400 mark.

The metal made more gains between 2009 and 2011 before backsliding. However, the downturn did not last long, and by 2015 gold prices were slowly ramping up again, reaching its highest in August of 2020 at AU$2,618.67.

performance of gold price from 2006 to the present

Performance of gold price from 2006 to the present.

Chart via TradingView.

While there are a variety of factors that influence the price of gold, some have more weight than others. Below is a guide on the main elements that are shifting and shaping the price of metal.

The Australian dollar

The first element supporting the yellow metal is the fact that the Australian dollar did not have the strongest year in 2020. In general, as the dollar declines, the yellow metal will see an upward price movement.

performance of gold price and Australian dollar from 2006 to the present

Performance of gold price and Australian dollar from 2006 to the present.

Chart via TradingView.

Reserve Bank of Australia

Much like with the US, interest rates have been raised in Australia as of late. In May 2022, the central bank lifted rates for the first time since 2010 by a quarter point basis, with investors expecting it to continue to increase rates at that pace.

However, following its June policy meeting, the Reserve Bank of Australia moved its cash rate by 50 basis points to 0.85 percent — its highest hike in 22 years.

Gold tends to retreat directly after rates are increased, but it is not always the case. Higher interest rates make stocks, government bonds and other investments more attractive to investors.

reserve bank of australia\u2019s interest rates from the past five years

Reserve Bank of Australia’s interest rates from the past five years.

Chart via Trading Economics.

The United States

The ongoing trade war between the US and China has affected overall global markets, and in Australia it has sent investors running towards the safe haven nature of gold. The spat between the two powerhouse countries has been ongoing for four years, causing a tariff tit-for-tat that has resulted in volatility in the markets.

These tensions have been eased slightly in recent years by the signing of a phase one trade deal in January of 2020 between the two nations, and recent talks between the leaders of both countries.

Geopolitical events

Any time global tensions rise, the price of gold will rise as well. Usually, these events only trigger a short-lived rise in precious metals like gold, as investors turn to gold for a safe investment in the face of international conflict. Most recently, the war in Ukraine has caused gold prices to shoot up.

It’s likely that gold prices will continue to be volatile depending on how the war progresses. However, if historical precedent stands true, the support for gold will be short lived and drop once tensions ease and the need for a safe haven investment goes through a correction.

performance of gold price during the 2014 crimean annexation by russia

Performance of gold price during the 2014 Crimean annexation by Russia.

Chart via TradingView.

The above chart displays the price of gold in Australian dollars during the 2014 Russian invasion of Ukraine’s Crimea peninsula. It shows how the price of gold soared during February and March, when the invasion took place. After this period, gold returned to its previous trend. Although the current events are of a much larger scale and predicting how they will develop is impossible, the past history of gold’s price during geopolitical conflict is worth considering.

Bond market and exchange rate

Another element that is currently affecting the price of gold is a dwindling 10 year government bond yield. Since 2008, 10 year yields have dipped from over 6.59 percent to a low of under 1 percent in 2020. Currently, 10 year bonds are recovering from the pandemic low and sit at 2.77 percent.

australian government 10 year bond yields since 2006

Australian government 10 year bond yields since 2006.

Chart via Market Watch.

Compared to US 10 year yields, which have fallen from 4.05 percent to 2.47 percent over the same period, it is clear that the Australian bond market has taken a larger hit. Because of this, the exchange rate for Australian and US dollars has fallen and has led gold to outperform in Australian dollars.

“The bottom line is that, while the AUD gold price is high, it’s entirely justified why it is trading above AU$2,000 per ounce. Whether it’s a faltering local economy, a fragile property market, negative yield differentials, low and falling rates or a weakening currency, there are many good reasons why astute investors typically allocate 5 to 10 percent of a diversified portfolio to gold. The strategic case for gold is as strong as ever,” the World Gold Council explains.

Gold price and the ASX: How gold affects the market

Gold’s relationship with the ASX is unique in that the metal indirectly follows the movements of the market, as opposed to resources like oil and gas. The yellow metal has the tendency to be viewed as a counter-cyclical asset, which means that its value increases during market downturns.

Due to gold’s large global presence and high intrinsic value, the precious metal is often seen as a universal currency. When the outlook of the equity market looks bleak, or corporate earnings are destined for doom, investors will flock to the precious metal.

On the flip side, when the economy, and in turn the ASX, is on the rise, investors tend to abandon the yellow metal in favour of equities.

However, this is not to say that the relationship between gold and the ASX is a negative one. It is more of a give-and-take commitment. The metal continues to have an impact on jewellery and jewellery-related products. Additionally, gold is used in dentistry, aerospace and electronics — all of which affect publicly traded companies and as a result the ASX.

This relationship between the gold price and the ASX has turned the precious metal into something of a hedge when it exists within an individual’s portfolio as a source of diversification, which is when market participants hold investments that are not related to one another.

Since gold has a history of having a negative correlation to stocks, bonds and other financial instruments, it becomes important that investors get diversified by owning a portfolio that combines gold with stocks and bonds in order to reduce both volatility and risk. While it is true that the yellow metal goes through times of volatility, its spot price has always maintained its value over the long term.

This is an updated version of an article first published by the Investing News Network in 2020.

Don’t forget to follow us @INN_Australia for real-time updates!

Securities Disclosure: I, Matthew Flood, currently hold no direct investment interest in any company mentioned in this article.

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